Late last year, the Federal Housing Administration (FHA) announced that it had posted draft Home Equity Conversion Mortgage (HECM) Origination through Servicing sections of its Single Family Housing Policy Handbook 4000.1 for the review of program stakeholders, with the agency requesting feedback to provide for the proposed changes.
Soon afterward, the U.S. Department of Housing and Urban Development (HUD) punted the review period to the end of 2021, and then once more to the end of January, 2022. While a new HECM Handbook has yet to be released, work has been progressing on the proposed changes, with the National Reverse Mortgage Lenders Association (NRMLA) providing industry feedback through the efforts of its HUD Issues Committee Co-Chair Elly Johnson of All Reverse Pro.
Last month at the NRMLA Eastern Regional Meeting in Baltimore, Md., Johnson provided an update to meeting attendees about the work that has been done on the Handbook review, the work that remains, and whether or not there is an indication regarding when the new Handbook will be released.
HECM Handbook remains in draft format, though progress is apparent
While the new Handbook currently remains in draft format and there is no indication about when exactly it might be released by FHA, Johnson told attendees that the amount of work that has gone into both the new revisions and in NRMLA’s comments to the agency has contributed to progress for the industry’s goals.
“I will tell you from my personal experience going through this handbook and working with those many wonderful people in our industry who helped pull this together, that HUD has been telling us for a long time that they wanted to do everything that they could to help align the HECM with the forward side of the business,” she said. “It does appear in the draft handbook that they are working towards that effort.”
A certain area that the industry has been working toward for some time includes HECM for Purchase, and Johnson explains that in this and other areas, there is remaining work to do. Still, she seemed optimistic about the progress that has been made.
“I think over time as we continue to work directly with HUD and give them our feedback, I’m hoping we can align [H4P] as well,” she said.
At the end of June, HUD issued an updated 4000.1 Handbook and Johnson recalled receiving correspondences from people within the reverse mortgage industry, celebrating the apparent arrival of a new HECM Handbook.
“Those changes were strictly for forward,” she said. “There were a lot of forward changes that were issued in the 4000.1. When the draft guide is issued, it will be incorporated into the 4000.1 [into] a section designated for [reverse].”
The work of the review
Johnson explained that the association’s work reviewing the draft guide commenced in early October, barely a week after the initial announcement of the posting to the drafting table. Initially, the association was given only 45 days to review the extensive document, emphasizing the scope of the project by detailing how many individual pieces of guidance had been issued over the course of the HECM program’s existence.
“First of all, there have been over 156 HECM Mortgagee Letters (MLs) that have been issued since the product started [in 1989],” Johnson said. “That’s a lot of mortgagee letters.”
In August of 1989, the original 4235.1 Handbook was published, and in 1994 the REV-1 was published at a time when only five of the MLs related to the HECM program had been issued. Since then, the HECM MLs have not been incorporated into the Handbook, something which was previously noted by former Principal Deputy Assistant Secretary (PDAS) for the Office of Housing and the FHA Lopa P. Kolluri during a NRMLA event in 2021.
“I was actually surprised to learn that the HECM program is still governed by so many individual Mortgagee Letter policy documents,” Kolluri explained in May 2021. “And I find it sort of confusing and inefficient to some extent. And so, we need to take a look at that pretty seriously and make sure that it works for both program participants and for HUD.”
Draft provisions, model HECM documents
In total, Johnson and NRMLA submitted 183 comments to FHA regarding the new draft guidance, and while Johnson did not wish to exhaustively go through all of the submitted comments, she did indicate the topics of several issues that have been highlighted.
“Basically, [the draft currently] says any borrower who was granted a forbearance and is otherwise performing under the terms of the forbearance is not considered delinquent for purposes of analyzing credit,” she said. “That’s good. That’s something that we see and it’s one of those areas where it falls in line with what the forward side’s doing. So hey, let us do it too. We consider that a win for us.”
A provision also will allow mortgagees to use monthly mortgage payment history to establish that necessary taxes have been paid.
“There have been some issues trying to actually get documentation to prove payment of taxes,” Johnson said. “Well, this gives us the ability to be able to say ‘okay, if you know that it’s being paid through that mortgage company through the mortgage payment, then you can use the status on the credit report for that.’ So that’s another win, too.”
Other topics that the comments touched on included origination and counseling; closing, post-closing and endorsement; underwriting and the Financial Assessment; H4P and H2H; and servicing-related issues.
Johnson also touched on the need for the model HECM loan documents to be revised in order to account for the extensive changes made to the program over the program’s entire existence.
“The recommendation was for NRMLA to work together with HUD to assist with updating those HECM model documents in a manner that best assures that lenders that are using the documents are, in FHA’s view, appropriate and in a manner that will provide the greatest degree of consistency across various lenders in the industry,” she said.